October has a notorious reputation among stock market watchers. It’s typically not a bad month—over the past 50 years, the S&P 500 has averaged a gain of 0.85% during the period—especially compared with September or February, which average a loss.
But October is a month that has featured some of the worst stock market declines in history. Eye-popping drops, like the 1987 “Black Monday” crash, as well as a large part of the 2008 financial crisis-driven meltdown, took place during October.
It’s no wonder then that investors got spooked when stocks began falling this October. The drip lower began slowly, initially regarded as an overdue pullback after the major indices notched record highs in September. But soon the sell-off accelerated and now has some investors running for the hills, panicked that this could be the start of something bigger.
2018 Gains Wiped Out
This month alone, the SPDR S&P 500 ETF Trust (SPY), the world’s largest exchange-traded fund, is down 8.7% after falling in 14 of the last 18 sessions through Oct. 24. For the year as a whole, the ETF is barely hanging onto a 0.7% gain.
Yearly Gains Wiped Out
This is the third correction of more than 8% for SPY this year. In February and March, the S&P 500 experienced similar, sharp declines on the back of nearly identical worries about rising interest rates and trade wars.
October’s stock market sell-off has hit shares of smaller companies even harder than their larger counterparts. The iShares Russell 2000 ETF (IWM) and the iShares Core S&P Mid-Cap ETF (IJH) slid 13.4% and 11.4%, respectively, putting both solidly in the red on a year-to-date basis.
Though they are less sensitive to trade jitters than large-caps, stocks of smaller companies have underperformed, as investors worry that higher interest rates will hurt them the most.
YTD Returns For SPY, IJH, IWM
Falling Back To Earth in October
Also underperforming? Former high flyers and economically sensitive sectors. The SPDR S&P Internet ETF (XWEB), once the top-performing nonleveraged ETF of the year, plunged 15.9% in October; the ROBO Global Robotics and Automation Index ETF (ROBO), another high flyer, lost 16.3%; and the ETFMG Alternative Harvest ETF (MJ), a popular marijuana fund, spiraled 21.5% lower.
Meanwhile, among Vanguard’s suite of 11 U.S. sector ETFs, energy and materials have been the worst hit, with consumer discretionary, industrials and technology close behind. ETFs tied to those sectors swooned 11-13% so far this month.
The only U.S. equity sectors to rise in October are two noncyclical, defensive groups: utilities, up 4.1%; and consumer staples up 1.1%.
The Vanguard Real Estate ETF (VNQ), mostly comprising real estate investment trusts, fared relatively well, with a modest 3.2% pullback this month, even as other real estate-related ETFs like the iShares U.S. Home Construction ETF (ITB) tumbled 16.1% in the same period.